Argentina’s agreement with the Paris Club to settle $9.7 billion of outstanding debt will help attract foreign investment to the country by lowering interest rates for financing, Economy Minister Axel Kicillof said.
Companies from the 19 member countries of the Paris Club group of creditors have found it difficult to obtain financing for investment in Argentina because of the debt owed since a default 13 years ago, Kicillof said at a news conference today in Buenos Aires. The government will pay arrears that amounted to $9.7 billion at the end of April over a five- to seven-year period at a maximum interest rate of 3.8 percent, Kicillof said.
“Once we begin to pay the maturities, those agencies are going to open the doors that were previously closed,” Kicillof said. “Companies that have been wanting to import and export in Argentina have been paying very high rates.”
The accord means Argentina, locked out of international credit markets since its record $95 billion default in 2001, has taken another step toward normalizing relations with international creditors. The agreement demonstrates Argentina’s willingness to resolve its debt issues, Kicillof said.
The agreement should bring investment into the automobile sector and infrastructure projects, Kicillof said while declining to speculate on a timeframe. In a recent meeting executives at Japanese Mitsubishi Corp told President Cristina Fernandez de Kirchner that an accord with the Paris Club would make financing easier, Kicillof said.
The company has businesses in Argentina involved in carbon, non-ferrous metals, power and electrical systems and food and feed additives among others, according to its website.
The country’s insistence on negotiating a settlement without involvement of the International Monetary Fund will give Argentina the chance to generate economic growth, Kicillof said. As part of the settlement, Argentina negotiated the lowest repayments in 2015 and 2017, years when it has large capital and interest payments to make to holders of restructured bonds from the default, he said.
The country has a low debt-to-gross domestic product ratio that doesn’t justify the high interest rates demanded by the bond market, Kicillof said. At times, Argentine bond prices rise and fall depending on the “schizophrenic psychology” of the bond market.
The extra yield, or spread, investors demand to own Argentine bonds over U.S. Treasuries, at 8.32 percentage points, is the highest in emerging markets after Venezuela.
“Prices depend on many factors, some with real fundamentals and others using psychology of the market,” Kicillof said.